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Monday, 26 November 2012

Technicals vs News

We saw a very strong day for equities on Friday and, despite the short session and holiday volume, SPX broke a number of key technical resistance levels that I'm inclined to take seriously. It wasn't a proper trading day on SPX, but I haven't noticed that making a lot of difference in the past when key levels have broken, and the benefit of the doubt is now back with the bulls.

On the SPX weekly chart the middle bollinger band (BB) target was in the 1412 area. SPX closed at 1409 which counts as a hit, so that is no longer a target. There have been fourteen hits of the weekly middle BB on a move from the weekly lower BB in the last fourteen years and eleven of those broke back above it. Of those eleven nine went on to hit the weekly upper BB, now in the 1475 area. Of the three hits that reversed at the weekly middle BB back down to the weekly lower BB, two went one to make the major lows in 2009 and 2010, and the third made the right shoulder on the 2010 IHS:
I'll skip the daily SPX chart today other than to mention that the upper BB there is currently at 1439. On the 60min chart SPX broke back above the H&S neckline and declining resistance on Friday. The next important resistance is in the 1420-30 range, and there is no negative RSI divergence suggesting a sizable reversal here:
There is no negative divergence on the ES 60min RSI either, but the Monday after Thanksgiving is traditionally weak and I'm looking at an obvious retest target at 1387/8 broken resistance. I have some possible trendline support in the 1396.75 area on the way. This 1387/8 Es level is very important. The bulls had nothing until ES broke back above, and now that we have seen that bullish breakout the bears have nothing unless they can break back below it. That level is main support now and if we are to see a bullish run into Xmas, I'd be expecting it to hold:
I said a couple of weeks ago that there was a good resistance trendline on NDX that should signal that the downtrend had ended, or at least was ending, on a break back above it. NDX gapped above it on Friday and I would respect that break. We might yet see a retest of broken resistance in the 2610 area:
On other markets EURUSD broke up strongly on Friday. I've been looking for signs of retracement this morning but the overnight action looks like a bull flag, and the overnight low established a decent short term support trendline. I'll be looking for some retracement only if that trendline breaks. If it does break then the obvious retracement target is broken resistance in the 1.2875 area:
There is a possible setup on TLT that would fits with a weak start to this week on equities this week followed by more strength, as there is a possible H&S forming on the 60min chart. That's worth keeping an eye on and any break with confidence below 124 would look bearish and suggest a move back into the 119.75 to 121.25 support range:
My last chart of the day is one I first posted in 2010 as a possible upside target and at the very least it is a very thought-provoking chart. The chart is the SPX since 2050 in 2012 dollars, and you can see the very strong declining channel there from the bubble top on 2000. A bull move into 2013 from here could deliver a hit of declining channel resistance in early 2013 in the 1500-20 area, which would be within the normal range to see the second top of a double-top. If we see that bull move I'll be posting this chart regularly as we get close:

The technicals say that the bulls have better odds here but obviously there are some major issues that may derail any bull move here. The fiscal cliff has not been resolved, and may not be resolved. The economy is weak, earnings are also weak, and policy in the developed world is still being run by one-trick pony bureaucrats with a strong record of delivering failure. That said, the technicals have been a lot more reliable than fundamentals over the last decade, and they are now pointing up again. We'll see how that goes. Short term the bulls are back in charge as long as support at 1387/8 ES holds, and Any test of that level today will look like a nice long entry. If you want to see an oil chart I posted one on the weekend post at MarketShadows, and you can see that here.

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